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Relationship Marketing Relationship Value of Customers Customer Profitability Segments Relationship Development Strategies Relationship Challenges. Chapter 6. Building Customer Relationships. 6- 1. Objectives for Chapter 6: Building Customer Relationships.

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building customer relationships
Relationship Marketing

Relationship Value of Customers

Customer Profitability Segments

Relationship Development Strategies

Relationship Challenges

Chapter

6

Building Customer Relationships

6-1

objectives for chapter 6 building customer relationships
Objectives for Chapter 6:Building Customer Relationships
  • Explain relationship marketing, its goals, and the benefits of long-term relationships for firms and customers.
  • Explain why and how to estimate customer relationship value.
  • Introduce the concept of customer profitability segments as a strategy for focusing relationship marketing efforts.
  • Present relationship development strategies—including quality core service, switching barriers, and relationship bonds.
  • Identify challenges in relationship development, including the somewhat controversial idea that “the customer is not always right.”

6-2

relationship marketing
Relationship Marketing
  • is a philosophy of doing business, a strategic orientation, that focuses on keeping current customers and improving relationships with them
  • does not necessarily emphasize acquiring new customers
  • is usually cheaper (for the firm)
    • keeping a current customer costs less than attracting a new one
  • thus, the focus is less on attraction, and more on retention and enhancement of customer relationships

6-3

benefits of relationship marketing
Benefits for Customers:

Receipt of greater value

Confidence benefits:

trust

confidence in provider

reduced anxiety

Social benefits:

familiarity

social support

personal relationships

Special treatment benefits:

special deals

price breaks

Benefits of Relationship Marketing

6-7

benefits of relationship marketing1
Benefits of Relationship Marketing
  • Benefits for Firms:
    • Economic benefits:
      • increased revenues
      • reduced marketing and administrative costs
      • regular revenue stream
    • Customer behavior benefits:
      • strong word-of-mouth endorsements
      • customer voluntary performance
      • social benefits to other customers
      • mentors to other customers
    • Human resource management benefits:
      • easier jobs for employees
      • social benefits for employees
      • employee retention
customer loyalty exercise
Customer Loyalty Exercise
  • Think of a service provider to whom you are loyal.
  • What do you do (your behaviors, actions, feelings) that indicates you are loyal?
  • Why are you loyal to this provider?
  • What factors have influenced the formation of your loyalty?

6-10

figure 6 4 the customer pyramid
Figure 6.4: The Customer Pyramid

What segment spends more with

Most Profitable

us over time, costs less to maintain,

Platinum

Customers

spreads positive word of mouth?

Not as profitable: discounts or less loyal

Gold

Utilize capacity, but do not merit special treatment

Iron

Lead

What segment costs us in

time, effort and money yet

Least Profitable

does not provide the return

Customers

we want? What segment is

difficult to do business with?

6-12

strategies for building relationships
Strategies for Building Relationships
  • Core Service Provision:
    • service foundations built upon delivery of excellent service:
      • satisfaction, perceived service quality, perceived value
  • Switching Barriers:
    • customer inertia
    • switching costs:
      • set up costs, search costs, learning costs, contractual costs
  • Relationship Bonds:
    • financial bonds
    • social bonds
    • customization bonds
    • structural bonds

6-15

alliance boots
Alliance Boots
  • The leading health and beauty retailer in the UK.
  • Advantage Card, smart card loyalty program with 17million members
  • Collecting points to redeem a full day treatment at a spa
  • Sending a health and beauty magazine to the top 3million card holders
  • They learn that the more customers buy, in more categories over time, the more they visit Boots stores.
  • http://www.boots.com/
the customer is not always right
“The Customer Is NOT Always Right”
  • Not all customers are good relationship customers:
    • wrong segment: customer whose need firm cannot meet
    • not profitable in the long term

Customers with bad credit or accident-prone drivers

    • difficult customers

6-19

ending business relationships
Ending Business Relationships
  • Should firms fire their customers?

6-20